Intestacy - Widow and two children left

Kingo4581

If someone dies intestate with an estate worth £465,000 leaving a wife and two children, correct me if I'm the following would happen:

Wife would receive £125,000 fixed sum and half the remainder as a life interest: £170,000. The children would receive £170,000 to share between them.

This bit I understand, but where does IHT come in? Do we pay IHT on all of the £165k = £66k, even though some of it is being transferred to his spouse. Or do we only pay IHT on the childrens share, and then pay the IHT on the spouses portion when she dies. I'm confused!

Thanks :money:

Kingo4581

The way I see it, of the 465 the widow takes 125 IHT free as her fixed sum leaving a residuary estate of £340k. The widow then gets 170 of this as a life interest (passed onto the children when she dies) and the children share the other 170.

Then one of the following happens:

If the wife's 170 is treated normally and does not effect the nil rate band, then the children inherit their 170 tax free due to the nil rate band not being exceeded.

OR

The 340 - nilrateband = 40 is subject to IHT.

But both of these may be wrong too

Kingo4581

Well I know the intestacy laws. If someone dies and leaves a wife and "issue" (children) the wife inherits the personal chattels, a fixed sum of £125,000 and half the remainder of the estate "as a life interest". The issue receive the other half of the remainder.

These rules appear everywhere, but nobody mentions what happens with the IHT in this situation. I know the spouse can inherit unlimited IHT free, and a further £300,000 can be given away IHT free.

I guess the main point I want to know is because the wife receives the remainder only as a life interest (with the children taking it upon her death), does this mean we pay IHT on it now or when she dies.

Willman_Rodders

Hi Kingo,

I would like clarify the previous posts. You state the deceased's estate was valued at £465,000. Does that include a matrimonial home, and if so was the tenancy of the property 'Joint Tenants'? Does it include joint bank accounts?

If it does then these assets automatically go the surviving spouse, absolutely.
You will then need to rework your calculations in line with the previous posts, taking off these assets.

eg estate value 465,000
less house (say) 350,000
less joint savings 35,000
Estate value 80,000

As the estate value is £80,000 in this example and below £125,000 no trusts are created.

For most familites the property forms the majority of the estate and so this £125,000 is not exceeded and so these statutory trusts that are
mentioned in the previous posts do not apply.

If they did apply, and in answer to your latest question, the tax position on a 'lifetime interest trust' (also known as an 'Interest in Possession' trust) is that the value of the trust is added to the assets of the deceased for inheritance tax purposes at the time of death. If the figure execeeds the nil-rate band allowance (presently £300,000) then IHT is payable.